112 billion (€81 billion) Teachers Retirement System of Texas pension fund last November, he didn't take long to rock the boat. Just five months after his appointment as chief investment officer, Harris went before the pension fund's board and sought approval to increase the fund's alternative investment allocation from 5.5 percent to 35 percent. The board “only” approved 29 percent, or $32.5 billion, but the increase was dramatic, and the allocation larger than that of any other US public pension plan.
Under the new plan, 10 percent of the fund's assets will be allocated to private equity, up from 2.2 percent previously. Allocations to public equities will, in turn, be reduced. The fund suffered a $16.2 billion net revenue loss during the early part of the decade due to the stock market decline, and many believe another recession may be looming. Private equity, on the other hand, has performed well in Texas Teachers' portfolio on the whole. In 2002 and 2003, the first two years the pension allocated funds to the asset class, returns were negative, but in 2004, 2005 and 2006, private equity returned 26.1 percent, 38.4 percent and 45.3 percent, respectively – consistently outperforming every other asset class in which the organisation is invested.
Now Texas Teachers' is looking to expand the staff of its alternatives division to support the increased allocation. The pension plan is currently looking for: a risk management director; a lead manager for internal public markets; three lead managers for external public and hedge fund strategies; a lead manager for private equity markets; and a lead manager for real estate.
And if that frantic hiring spree isn't enough, a second round of recruitment will be launched subsequently in order to identify a senior manager for performance measurement, as well as a number of managing directors. Rarely, it might be argued, has more faith been placed in the future of private equity and other alternative asset classes.
BLACKROCK'S SCHLOSSTEIN TO RAISE $1BN
BlackRock co-founder Ralph Schlosstein has stepped down as president. Schlosstein has left the asset manager in order to raise $1 billion (€724 million) for private equity, hedge fund and real estate investments. He may also buy stakes in other asset managers. Schlosstein will remain with the firm as a financial advisor until early next year. “He has touched every component of our business, from creating early closed-end funds to building our insurance business, launching BlackRock Solutions and overseeing our alternatives business,” said BlackRock chairman and chief executive Laurence Fink in a statement.
MOELIS FIRST CLOSES ON $1.8BN
Moelis & Co., led by former UBS banking head Ken Moelis, has held the first close of its debut fund on $1.8 billion (€1.3 billion). The fund will focus on co-investments with other firms, rather than leading deals. It will operate opportunistically, rather than targeting a particular sector or deal size. Moelis left UBS in March, reportedly out of frustration with the bank's reluctance to finance leveraged buyouts. A handful of other UBS bankers followed him to his new firm, including media banker Navid Mahmoodzadegan and joint head of global mergers and acquisitions Jeff Raich. Earlier this year, cohead of investment banking Jeffrey McDermott stepped down as well, and founded a distressed investments firm, Stony Lane Partners. McDermott and his business partner, US billionaire Michael Heisley, are in the process of raising between $750 million and $1 billion for their first fund.
SPG CLOSES $620M DEBUT FUND
Two-year old mid-market firm Snow Phipps Group has closed its first fund on $620 million (€456 million). The fund, which initially targeted $500 million, has been in the market for at least 18 months, and held a first close early last year on $300 million. SPG has done five deals to date, including the buyout of low calorie frozen dessert chain Tasti D-lite, in which Tom Lee was a co-investor, and Laureate Education, which was purchased by a consortium including Kohlberg Kravis Roberts, Citi Private Equity, SAC Capital Management, Bregal Investments, Caisse de depot et placement du Quebec, Sterling Capital, Makena Capital and Vulcan Capital. The firm focuses on specialty franchising, basic and process industries, apparel and luxury retail, media technology, specialty finance, IT services and telecommunications equipment and industrial components.
NEW JERSEY AND LEHMAN TEAM UP
The New Jersey Division of Investments and Lehman Brothers have raised a $105 million fund that will invest in private equity funds and privately owned companies that are based in or plan to make investments in New Jersey. “We can select investments that will provide the pension fund with good returns and at the same time provide needed capital to companies that will help New Jersey's economy to grow,” said New Jersey Department of the Treasury's director of investments William Clark in a statement. Oregon, New York, Ohio, Massachusetts and California have similar programmes.
SEQUOIA DROPS YALE
Sequoia Capital ousted the $20 billion (€14.5 billion) Yale University Endowment, led by David Swensen, from its partner group after the endowment declined to participate in several funds targeting later-stage deals in China and India, according to an internal Yale memo revealed to The WallStreet Journal. The memo said Sequoia wanted the endowment to write it a “blank cheque” to invest as the firm saw fit. In response, another Sequoia LP, the Massachusetts Institute of Technology, released a statement saying that it had on many occasions declined to invest in “name brand venture capital firms' affiliated products” without consequence. “The suggestion that MIT has been coerced into investing in any fund is ridiculous,” the statement said.
CATALYST CLOSES BELOW TARGET
Media-focused firm Catalyst Investors has closed two new funds on $170 million (€124 million). Catalyst Investors II and Catalyst UK Partners closed below their combined target of $250 million in order to start doing deals earlier, said managing partner Brian Rich. “With a fund of our size and scale, we wanted to close it out and put the money to work,” Rich said. Catalyst Investors II will invest in between 10 and 15 companies in the media, telecommunications and related internet services sectors. Catalyst IK Partners was raised as a co-investment vehicle for a specific acquisition target; its capital has already been deployed, but the firm did not disclose the identity of its target.